sboxermanFeatured Expert Column – Environmental Law and Policy

by Samuel B. Boxerman, Sidley Austin LLP with Joel F. Visser, Sidley Austin LLP

*Editor’s note: Washington Legal Foundation filed an amicus brief in support of the Petitioners in the case discussed below.

Across the country, companies are using hydraulic fracturing techniques to develop shale oil and gas resources that create jobs and provide for economic growth. However, developers face a determined opposition that is using referenda, court challenges, and municipal ordinances in an effort to stymie development. In a long-awaited ruling issued today in In re: Mark S. Wallach, as Chapter 7 Trustee for Norse Energy Corp. USA v. Town of Dryden, Case No. 130, and Cooperstown Holstein Corp. v. Town of Middlefield, Case No. 131, the New York Court of Appeals gave this round to the opponents of development, finding the towns’ home rule authority gave it the power to ban development unless explicitly preempted by state statute.

The Court affirmed the appellate court decision that the towns’ prohibitions on oil and gas development were valid zoning ordinances and not preempted by New York’s Oil, Gas and Solution Mining Law (“OGSML”). Two judges dissented from the opinion and would have held that the complete prohibitions on oil and gas activities essentially regulated how oil and gas development can occur and are preempted by the OGSML. The Court made clear, however, that its decision did not address the merits of hydraulic fracturing generally and asserted that such decisions involved policy questions that should be left to the coordinate branches of government.

The OGSML’s supersession clause at issue states: “The provisions of this article [i.e., the OGSML] shall supersede all local laws or ordinances relating to the regulation of the oil, gas and solution mining industries; but shall not supersede local government jurisdiction over local roads or the rights of local governments under the real property tax law.” ECL 23-0303(2)).

As an initial matter, the Court recounted New York’s strong commitment to municipal authority to regulate land use. The Court described the “home rule” provision in New York’s constitution and a series of state statutes and court decisions that broadly uphold the right of local governments to regulate land use. See, e.g., Slip op. at 8 (“local regulation of land use is ‘[a]mong the most significant powers and duties granted … to a down government’ (Town Law § 272-a(1)(b)”) Turning to limits on the local zoning under the preemption doctrine, the Court stated “we will invalidate a zoning law only where there is a ‘clear expression of legislative intent to preempt local control over land use.’” Slip. op. at 9 (citing Gernatt, 87 NY2d at 682). The Court found that the preemptive effect of the OGSML’s supersession clause must be interpreted under the three-part test announced in Matter of Frew Run Gravel Prods. v. Town of Carroll, 71 NY2d 126 (1987). Under that test, the court must consider “(1) the plain language of the supersession clause; (2) the statutory scheme as a whole; and (3) the relevant legislative history.” Slip op. at 10.

Applying the three-part test, the Court held that local governments can restrict where oil and gas development can occur under local zoning ordinances, but are preempted from regulating how oil and gas development occurs to the extent it is permitted. First, based on its reading of the plain language of the statute, the Court held that the zoning ordinances did not “regulate the actual operations of oil and gas activities,” but instead merely “restrict[ed] or prohibit[ed] certain land uses within town boundaries.” Slip. op. at 14. Next, with respect to the statutory scheme, the Court found that the OGSML is focused on the state’s “regulation and authority regarding the safety, technical and operational aspects of oil and gas activities across the state,” slip op. at 19, and found that local bans that focus on where, rather than how, oil and gas development can occur were consistent with the statutory scheme. Finally, the Court found that the legislative history did not address the supersession clause.

Significantly, the Court held that the supersession clause’s specific reference to “local government jurisdiction over local roads” and “the rights of local governments under the real property tax law” did not suggest that all other forms of local control over oil and gas development were prohibited. Instead, the Court suggested that these specific areas of local regulation were closely related to oil and gas activities and would have been preempted without an express exception in the supersession clause. Thus, while the decision gives local governments broad power to restrict or prohibit where oil and gas development may occur, it suggests that New York courts should scrutinize closely any regulation that would affect how (as opposed to whether or where) oil and gas development can occur.

In a brief dissent, two judges reasoned that the complete bans on oil and gas development were for all practical purposes regulating how oil and gas development could occur and, thus, should be preempted. The dissenting judges found that the detailed prohibitions that encompassed exploration, development, and storage of oil and gas created a blanket ban on an entire industry that goes beyond local land use and effectively regulates the industry.

The implications of this decision beyond New York remain to be seen. The Ohio Supreme Court is now considering a similar issue in a case argued in February. State of Ohio ex rel. Morrison v. Beck Energy Corp., No. 2013-0465. A decision is expected later this year.